Wednesday, June 30, 2010
While we've heard this kind of recommendation before, the UN is re-energizing its push. For example, they blame the financial crisis squarely on the dollar system...."
Comment: I fully agree. I am currently writing a paper about the origin of the current crisis (an ISI book edited by Thomas Woods) and it will give profound arguments for this position. I'll keep you posted on this.
accelerated by the way that governments were attacking “profiteers” in an attempt to shift the blame for the inflation: “These ‘profiteers’ are, broadly speaking, the entrepreneur class of capitalists, that is to say, the active and constructive element in the whole capitalist society, who in a period of rapidly rising prices cannot help but get rich quick whether they wish it or desire it or not.” The European situation was now dire. Facing starvation, “Men will not always die quietly . . . in their distress [they] may overturn the remnants of organisation, and submerge civilisation itself.”
.. In the Economic Consequences, Keynes (1919 , p. 160) was more sanguine, arguing that there was not “the slightest possibility of catastrophe or any serious likelihood of a general upheaval of society” in Britain. Keynes was, however, a vehement supporter of the increases in interest rates the Bank of England implemented in November 1919 and April 1920 (Moggridge, 1992, pp. 354–60). Indeed, when consulted by the Chancellor of the Exchequer in February 1920, Keynes (1920 , p. 184) argued for an even tighter monetary policy, on the ground that continuing high inflation would “strike at the whole basis of contract, of security, and of the capitalist system generally.” As Donald Moggridge (1992, p. 359) subsequently observed in his biography of Keynes, the “argument was that of the author of the Economic Consequences.”
Full text: Retrospectives: Who Said “Debauch the Currency”: Keynes or Lenin?
Michael V. White and Kurt Schuler
Tuesday, June 29, 2010
He adresses a serious problem: One may call it the Krugmanian confusion. Here you have an economist, Paul Krugman, who earned the so-called Nobel prize in economics yet what he is mainly famous for is a kind of diary for the New York Times. In these contributions he rarely gets things right. Indeed, in almost every piece that he writes, erros, sometimes even grave errors, can be found. Now, so it seems, Kartik wants Krugman and his minor followers to shut up. No, my friend, we won't do that. Krugman is a valuable asset in demostrating how wrong his Keynesian beliefs really are. There is no such thing as "science" in economics, yet, there is scholarship in economics, last represented by Hayek and Mises. Scholarship means knowledge and learning. It is the opposite of what Krugman and his minor compadres such as DeLong and Reich try to sell. Right, Kartik, your analysis is right, but let's not shut down Krugman, let's shut down the Fed.
"... Like a mad aunt, the Fed is slowly losing its marbles.
Kartik Athreya, senior economist for the Richmond Fed, has written a paper condemning economic bloggers as chronically stupid and a threat to public order.
And now the Fed tells us all to shut up. Fie to you sir.
The 20th Century was a horrible litany of absurd experiments and atrocities committed by intellectuals, or by elite groupings that claimed a higher knowledge. Simple folk usually have enough common sense to avoid the worst errors. Sometimes they need to take very stern action to stop intellectuals leading us to ruin...
Comment: I know several of these guys like Kartik. And now, if you should think he's an exception, I can tell that he is not. The discipline (not science) of economics has been brought down by exactly these types who now claim sainthood. Imagine guys like Kartik all over the place in institutions like the Fed, the State Department, and in almost any other of the many government agencies. In fact, neither Krugman nor DeLong nor Reich are very different from Athreya. Very strange attack because of these have Phds in economics from fairly "decent" institutions. And what these institutions produce is exactly the problem. No wonder that things come falling apart. It is interesting to note on a sideline that 39-year-old Athreya is a omni-present gatekeeper who, according to his CV is a referee for American Economic Review, Journal of Political Economy, Journal of Monetary Economics, Review of Economics and Statistics, Journal of Public Economics, Journal of Economic Dynamics and Control, Journal of Money, Credit, and Banking, Contemporary Economic Policy, Southern Economic Journal, The Quarterly Review of Economics and Finance, Journal of Macroeconomics,
B.E. Journal of Macroeconomics.
Now I understand more clearly why I stopped reading these journal years ago.
... It is time to turn the question around, and make a grave accusation against Soros. It is Soros who is endangering the euro by advocating these spending and loosening policies. They are policies that may give Europe budget problems that render its currency vulnerable to attack by Soros-like traders. Perhaps, like Merkel, Soros is doing his endangering for understandable reasons. Nonetheless, the danger is there, and worth laying out..."
Comment: It's good to read, at least once in while, some reasonable commentary in the American financial press. Insider trader Soros is a hypocrite. While playing a self-styled savior of the common European currency, he is actually keen on knocking the euro out for good. In contrast to the British pound, the euro doesn't serve as a toy for the currency speculators who have burnt their fingers recently by their ill-fated attempt to explode the eurozone and go after its parts.
Attention is focused on the House-Senate conference on a once-in-a-generation rewrite of the rules of finance. Meanwhile, a provision added, almost unnoticed, to a help-small-business bill that passed the House last week would allow all but the 100 largest banks to pretend they haven't made bad loans. The goal is to prompt them to lend more readily to small businesses.
The provision would permit more than 7,800 banks, with nearly $3 trillion in assets among them, to spread losses on bad real estate loans over six to 10 years instead of recognizing reality immediately..."
Comment: Sound money, sound banking, sound accounting. It is all gone. What we have insead is a corrupt monetary system, frivolous banking and fraudulent accounting.
Monday, June 28, 2010
BIS Annual Report 2010, p. 69
the fiscal position in many countries. Indeed, from the 1970s to 2007, the collective average public debt ratio in industrial countries had steadily ratcheted up from 40% to 76% (Graph V.2, right-hand panel). The chronic
mismatch between revenues and committed expenditures (particularly agerelated spending) indicates that, to varying degrees by country, the fiscal situation was already on an unsustainable path before the beginning of the recent financial crisis.
By the end of 2011, public debt/GDP ratios in industrial countries are projected to be on average about 30 percentage points higher than in 2007 – a rise of about two fifths. But the increase for countries that have been hit particularly hard by the crisis will be even greater: for the period from the end of 2007 to the end of 2011, the debt/GDP ratio is expected to rise by more than half in the United States and by four fifths in Spain and to almost double in the United Kingdom and triple in Ireland (Table V.1). The recent increase in public debt is unlikely to be halted any time soon, for a number of reasons..."
BIS Annual Report 2010, p. 62
BIS Annual Report 2010
However, financial institutions may underestimate the risk associated with this maturity exposure and overinvest in long-term assets.5 As already noted, interest rate exposures of banks as measured by VaRs remain high. If an
unexpected rise in policy rates triggers a similar increase in bond yields, the resulting fall in bond prices would impose considerable losses on banks. As a consequence, they might face difficulties rolling over their short-term debt..."
BIS annual report 2010, p. 41
BIS 2010, p. 38
From the BIS annual report
OPEC Warns War With Iran Would Cause 'Unlimited' Oil Price HikeSaturday, July 12, 2008 Addressing one — the threat of a U.S. or Israeli attack on Iran because of its nuclear defiance — he warned that his organization was unprepared — and unable — to make up for resulting oil shortfalls.
"It is impossible to replace the production of Iran," OPEC's No. 2 producer, Abdalla Salem El-Badri told reporters at the presentation of the organization's long term oil market outlook. “The prices would go unlimited ... I can’t give you a number.”
The United States and Israel have not ruled out a military strike on Iran as a last option if it does not give up uranium enrichment and heed other U.N. Security Council demands meant to dispel the fear Tehran wants to make nuclear arms.
Tehran produced just over 4 million barrels of crude a day last year — more than 10 percent of OPEC's total production...
Comment: Sometimes one says as rhetorical figure that this or than implies "unforeseen consequences", yet this formula may exactly express was is in in the case of a military attack on Iran.
Wall Street's secret advantage: High-speed trading
They're unknown and invisible to most of us, but electronic trading programs now rule the stock markets
It’s Wall Street’s winning edge. By harnessing massive computer power to buy and sell stocks in the blink of an eye, high-speed traders leverage tiny changes in value to make huge profits. The technique was pioneered in the early years of this decade by a hedge fund that hired astrophysicists, mathematicians, and statisticians to devise electronic trading programs. Other firms, including Goldman Sachs and Credit Suisse, quickly followed suit. Few outside the securities industry knew much about the practice until computer glitches helped cause the Dow to plummet 600 points in 15 minutes in May. But high-speed trading—also called high-frequency trading—now accounts for up to 70 percent of all trading in shares listed on the New York Stock Exchange.
How does it work?
Automatically. High-speed trading firms, from Wall Street powerhouses like Goldman Sachs to little-known shops with a handful of employees, program their computers to scan markets and exploit ephemeral price differences on the same stock trading on different exchanges. Their computer algorithms automatically generate thousands of transactions per second to profit from a price difference. For a fee, many stock exchanges even allow high-speed traders to get a few milliseconds’ preview of orders of 10,000 or more shares, giving them added incentive to handle unwieldy orders. “It is a rigged game,” says Sal Arnuk of Themis Trading, a brokerage firm. Some high-speed traders go one step further, paying a stock exchange for the right to install computer servers right next to the exchange’s own servers, a practice known as “co-location.”
Comment: High-speed is nothing more than good old-fashined arbitrage. What makes it different is the impact on the market, yes, and speed itself. Herein lies the problem. This kind of trading is as if a Formula 1 car showed up in regular commuter traffic. Technical crashes will become more frequent. At the micro level this rapid arbitrage makes the market more "efficient", but at the macro level the market becomes more mindless. A mega crash is only a question of time. Yet when the big one comes, the problem arises: who will (can) pay? A global chain reaction will affect every financial instrument, across all asset classes, countries and currencies.
Comment: It is well known that Paul Krugman has a problem with facts. How can he writes such nonsenese as quoted above when deficits are exploding everywhere? I guess he even believes that the reason for the outbreak of the current recession was "inadequate spending" from 2000 to 2007.
Sunday, June 27, 2010
Dollar's Biggest Rally Since '05 Buckles as Strategists Draw Line at $1.20 By Liz Capo McCormick - Jun 27, 2010
"... Futures traders are unwinding record bets that the dollar will rally. The number of contracts hedge funds and other large speculators hold betting on a rise in the dollar versus a fall against currencies traded at the Chicago Mercantile Exchange declined by 70 percent to 49,335 in the week ended June 22 from the peak of 163,085 on June 8, according to Washington-based Commodity Futures Trading Commission data..."
Saturday, June 26, 2010
Australia, Canada, Germany, the Netherlands, New Zealand and the United Kingdom all beat out the United States when it came to health care quality, efficiency, access, equity and the ability for citizens to lead long, healthy lives, says the report, from the Commonwealth Fund..."
Comment: I don't believe a word of it. On the other hand, I also don't believe that American universities are that good as some rankings say. One can make up any rating any way one likes the rating to be, be it health or education or whatever.
Friday, June 25, 2010
2. US total debt to GDP stands at 360 per cent. (Pimco)
3. 33 out of the 50 US States have depleted unemployment funds. (National Employment Law Project)
4. There will be 3.8 million foreclosures in 2010; 38 per cent more than last year. (Reality Trac)
5. Commercial property prices have fallen 40 per cent since 2007. (Congressional Oversight Panel)
6..While the official unemployment rate stands at 9.7 per cent, the overall rate stands at 18.4 per cent. (Gallup)
7. 40 million Americans are on food stamps. (US Department of Agriculture)
8. 2010 is the first of the coming years when social security will have more outlays than receipts. (US Congress)
9. Calculating price inflation with the former methodology would show negative economic growth for the US economy. (Shadow Statistics)
10. The effect of addtional debton gdp growth has become close to zero (see chart).
Comment: Once upone a time one used to say: it will get worse before it gets better; now it is the other way around, things got a little better for a while only to get much worse from now on.
Thursday, June 24, 2010
“... The trade recovery is now gathering momentum on the back of strong import demand in emerging markets,” the European Commission, the EU executive, said today in its quarterly assessment of the euro-region economy. “Euro-area exports will be further stimulated by the recent depreciation of the euro.”
... The 16-nation currency’s “real effective exchange rate has lost close to 10 percent” since its peak in October, the Brussels-based commission said. Against the U.S. dollar, the euro has fallen 19 percent since its Nov. 25 high, trading today at $1.2279 after reaching a four-year low of $1.1877 on June 7.
“The depreciation, if it persists, could boost exports by about 5 percent, with much of the gains taking place already in 2010,” according to the report....
Comment: Sometimes I think it is not just ignorance but outright envy or hate or some other strange emotional condition that prevents some analysts to recognize the correct fundamentals of the euro zone. Krugman, certainly, is a freak. Recently in Israel, he said: “On the inflation side, the Germans do worry a lot about inflation and basically that’s because they’re crazy”. Dear Paul, better take care and watch out what will come upon you when the US will be mired in hyperinflation. History clearly shows that it is hyperinflation more than anything else that robs people of the last traces of rationality. Any economist who does not know about the dangers of inflation is not worth his penny least a Nobel Prize, even a fake one.
Wednesday, June 23, 2010
Comment: We should be thankful for Obama's low ratings. Imagine Obama being a successful president with high ratings. Then people might actually believe that politics could do something good for them. Thanks, Obama, for showing the opposite. Thank you, Obama, for showing what politics is all about. Thank you, Obama, for showing the mean character of politics so drastically that even your fanclub may notice. Maybe people may learn from your performance what modern politics is really all about and that it is nothing but an ugly web of special interest groups who have only one thing in mind: pushing their agenda forward without any concerns beyond their specific aims.
Read more about the global debt bomb
Daniel Fisher, Forbes Magazine dated February 08, 2010
"... The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell--for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery. Traders like Bass could make a lot of money betting against sovereign debt the way they shorted subprime loans at the peak of the housing bubble.
National governments will issue an estimated $4.5 trillion in debt this year, almost triple the average for mature economies over the preceding five years. The U.S. has allowed the total federal debt (including debt held by government agencies, like the Social Security fund) to balloon by 50% since 2006 to $12.3 trillion. The pain of repayment is not yet being felt, because interest rates are so low--close to 0% on short-term Treasury bills. Someday those rates are going to rise. Then the taxpayer will have the devil to pay..."
Comment: To see how absurd things have become watch out for the Toronto summit this weekend when US government officials and their academic claqueurs will anounce that even more debt is needed and when they will scream for more debt from Europe and the rest of the world like small children do for icecream. Welcome on board of the ship of fools that is heading towards collective financial suicide.
Tuesday, June 22, 2010
Comment: Along with the loonie, gold will also gain in importance in this process of diversification. While the euro has never gained considerable status as a reserve currency, the dollar's prominence will diminish.
Comment: Indeed, and Roberts' argument confirms my reasoning why I am more pessimistic as to the future of the USA than that of Europe. Even despite massive immigration, most of the European states will maintain a deep-rooted national identity that continues despite whatever changes in the formal legal settings and is able to survive the most horrible catastrophies.
Monday, June 21, 2010
Commentary: If you think things are bad now...
Monday, June 21, 2010
Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits.
Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week.
"We can't afford to deny reality or delay action any longer," said Gov. Pat Quinn of Illinois, adding that his state's pension cuts, enacted in March, will save some $300 million in the first year alone.
But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthrough reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money. Some new rules may even hasten the demise of the funds they were meant to protect..."
Comment: Greece is everywhere. We've finally come to the point where the welfare state must end. This is a story that could be foreseen decades ago. And now it is also clear that we are only taking the very first small steps in a long journey of cuts, be it pensions, schools, health care, you name it. For too long too many have succumbed to the status of sheeples. They have rendered to debt, the modern form of slavery. The pied pipers continue blowing their seductive tunes but in the end reality, in this case a bitter reality, will take over.
It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.
Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction.
Albert Edwards from Societe Generale says the Atlantic region is one accident away from outright deflation - that 9th Circle of Hell, "abandon all hope, ye who enter" . Such an accident may be coming..."
Comment: Indeed, dear Ambrose, deflation would be the natural way of the economy to move to. It would punish, and rightly so, greedy debtors and lenders, and indeed put them into the 9th Circle of Hell. But nowadays we have a treacherous savior at hand: governments and central banks. They will do all they can to avoid deflation. In fact, they will try that hard that in the end they most likely will not only bring about moderate or sutbstantial inflation, as they want to, but hyperinflation, and it is really hyperinflation which the devil dearly wants, because in times of hyperinflation all morality gets lost and people lose their minds.
Hugo Salinas Price writes about the Consequences of abandoning the gold standard: "... The consequences of that fateful day (of abandoning the gold standard in 1971) have overthrown all order and harmony in economic relations among the nations of the world, while facilitating and expediting the global expansion of credit because part of the dollars exported by the US ended up in the reserves of Central Banks around the world..."
Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels...
Comment: I've been waiting for a bond market collapse for such a long time that I almost lost my faith in the meantime. However, I know that markets not rarely may behave irrationally not only for a short period of time, but for a long period of time, such a long period of time, indeed, that one (if anyone is still left) is about to lose his mind, too. That has been the case with the performance of the bond markets. Has the time now come for the bond market crash? I do not know, but I am ready to jump the wagon.
Sunday, June 20, 2010
Thursday, June 17, 2010
and explains "Not according to the economic and political facts ..."
Comment: Finally there is a commentator who brings reason back into the debate that has gone completely mad and has been overly dominated by prominent madmen who have bombarded us for months with relentless clattering, lack of substance and outright errors of analysis. I highly recommend reading Jacob's full text.
Kirkegaard: The Euro Is Safer than Ever – Here's Why
Published: Wednesday, 16 Jun 2010
8:22 AM ET Text Size By: Jacob Funk Kirkegaard
Research Fellow, Peterson Institute of International Economics
“The labor market is not improving,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “If you really are going to have a sustainable recovery, you need the labor market to improve.”
Comment: More than anything else does the US need a weaker dollar to achieve a recovery. Given the indebtedness of the US consumer, it is mainly only exports that could pull the US economy out of the slump.
The German economy, Europe’s biggest, will expand 2.1 percent this year, the institute said today in an e-mailed report, after forecasting 1.2 percent growth in March.
“Economic dynamism in the first half of the year is probably much higher than we estimated in March,” the institute said today in an e-mailed report.
June 17 (Bloomberg) -- European stocks and U.S. index futures gained and the euro strengthened as a Spanish bond sale eased concern the government will struggle to finance its burgeoning deficit. ... The euro rose, mirroring the gain in the S&P 500 futures index. The currency advanced 0.5 percent to $1.2374, and 0.4 percent to 112.99 per yen...
Comment: I guess that news like that will simply be ignored by the chattering class of the US economics pundits who, unfortunately for the US financial and business community, still receive way too much of an undeserved hearing.
Wednesday, June 16, 2010
In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money...
Comment: The words by Commission President Barroso are not fantasy. Worse: it is not only Europe that is threatened but the whole world. The grand failure of populist democracy, the decade-long love affair with debt, a culture of infantilization and the corruption of science and education now begin to bear their deadly fruits.
The shared currency will fall as much as 9 percent to $1.12 as the market forces the 16 member nations to rein in spending on programs such as welfare and retirement benefits, Drossos said in a radio interview today with Tom Keene on “Bloomberg Surveillance.”
“There are structural problems in Europe that aren’t going away any time soon,” said Drossos. “The euro still has further to decline.”...
Comment: What is this lady talking about? What are "structural problems"? I guess anyone has some. Anyway, the exchange rate of a currency is not determined by "structural problems", but by such things as relative trade performance and relative interest rates along with some general consideration about financial and socio-political stability. Where are the weaknesses here of the eurozone compared to major other currency areas? The euro area's position to the rest of the world, for example, is largely free of trade imbalances or debt. Interest rates are slightly higher. Finally, much more could be said about financial and socio-political stability in the eurozone compared to the US and other parts of the world. The euro has one thing in common with the other currencies, and that is that it is a fiduciary money based on fractional-reserve banking. Therefore not more trust shold be put into the euro than in any other currencies. However, as one must keep money in some kind of curreny, and any currency that is available is a fiduciary money, one should prefer the money of a region that is not in debt with the rest of the world. What makes the dollar inherently weaker than the euro is exactly this: that in the long run the US cannot maintain their payment ability against the asset holders abroad and must willingly or not resort to inflate the dollar. All major currencies have an internal debt problem of extreme proportions. Yet in addition to its internal debt problem, the dollar has also a massive external debt problem. Before the euro breaks down, the US dollar will come down.
2. Get a federal loan.
... Oh yes, federal loans. I've got $40,000 of those, which are in "forbearance" right now because I'm unemployed, meaning that the feds are paying the interest for a while, which is convenient for me, but not for our government which is now owned by China....
Really, that's about all you did for us – gave us a lecture hall, gave us an arrogant bastard to listen to, and gave us a room full of computers we could use sometimes, and you gave us a degree that employers look at and say "This guy knows how to write reports. Amusing." And I will be paying for this privilege until I am 51 years old..."
Comment: Just imagine the waste of money and time attending classes held by Robert Reich (Harvard) or Paul Krugman (Princeton) and a host of other so-called "academic" economists. Being myself an economist, though of a different kind, with the roots of my education in continental Europe, I am simply horrified of what has been going on over the past decades in US education, at least in economics and business, in the areas that I am familiar with, yet I am told it is not much different in other disciplines, maybe even worse.
Tuesday, June 15, 2010
Comment: Welcome on board Barclays, took some time to wake up, I guess.
I still wonder why so many of these failed prognosticators, first among them their lead bull, Krugman, can still stay in business after so many blatant failures. Maybe it is because nobody cares anyway. The clattering class. The fog throwers. Leaders of the sheeples. Anyway, it is sad, intellecutally, so to speak.
Monday, June 14, 2010
Monday, June 14, 2010
The economic reports for May are rolling in, and so far they're pretty ugly. In the first four months of 2010, it seemed pretty clear that a recovery was upon us, though it was shaping up to be a slow one. Last month, however, the economy seemed to take a step back. Was it a blip, or a sign of a double-dip to come?
Even though we don't yet have full information to evaluate May, here's what we do know: ---
Comment: Chairman Bernanke is more on white mushrooms than green shoots, so it seems.
In making the four-step downgrade to Ba1 from A3, Moody’s cited “substantial” risks to economic growth from the austerity measures tied to a 110 billion-euro ($134.5 billion) aid package from the European Union and the International Monetary Fund. The lower rating “incorporates a greater, albeit, low risk of default,” Moody’s said in a statement yesterday in London. The outlook is stable, it said...
Comment: Even a short investigation into the history of these rating agencies will teach you that more than Greek bonds, the ratings itself are junk. It is only their ignorance of the guys (& girls) who write these junk assessments that is surpassed by their arrogance. One is reminded of what once said about August Comte: It is well known that Comte was a madman, but what about his followers? This is not the only thing that Comte and the rating agencies have in common. Interestlingly enough, Moody's, S&P, and Fitch use Comte's positivist methodology which is already by itself a sign of madness.
"... the financial crisis might well have been avoided if we as a culture hadn’t invested so much political and psychological capital in the idea of owning a home. After all, the subprime mortgage business’s supposed raison d’être was making homeownership possible for people who lacked the means — or the credit scores — to get a traditional mortgage. It’s also why bank regulators and politicians were so willing to avert their eyes from the predations and excesses of the subprime companies..."
Comment: The problem was not the idealization of home ownership. The problem was debt. It is amazing how a host of writers eagerly work to rewrite history to their liking.
"... For three decades, starting in the late 1970s, the biggest economic problem America faced on an ongoing basis was inflation. Demand always seemed to be on the verge of outrunning the productive capacity of the nation. The Fed had to be ready to raise interest rates to stop the party, as it did on several occasions.
During this era of inflation economics, it appeared that John Maynard Keynes - and his Depression-era concern about chronically inadequate demand -- was dead. So-called "supply siders" told policy makers that if they cut taxes on corporations and the wealthy, they'd unleash a torrent of investment and innovation - thereby increasing the productive capacity of the nation. The benefits would trickle down to everyone else.
But the pendulum may now be swinging back to the earlier era in which demand always seems on the verge of trailing the nation's productive capacity. The biggest ongoing threats are chronic recession or even deflation, because consumers don't have enough money to what the economy is capable of selling at full or near-full employment. Despite gains in productivity, little has trickled down to America's middle class.
John Maynard Keynes is being exhumed because his Depression-era worry about inadequate demand is once again the nation's central economic problem.
Keynes prescribed two remedies -- both of which are now necessary: Government spending to "prime the pump" and get businesses to invest and hire once again. And, as Keynes wrote, "measures for the redistribution of incomes in a way likely to raise the propensity to consume." Translated: Instead of big tax cuts for corporations and the rich, tax cuts and income supplements for the middle class..."
Comment: Robert Reich, even more perfect than Krugman, shows the true dimension of popular economic thinking in the US as the size of Micky Mouse. The decline of economics as an academic disciplines has been going on for decades, yet it is only now, after the outbreak of the recent financial crisis, that the true dimension of the decline becomes visible.
Saturday, June 12, 2010
"Japan is at "risk of collapse" under its huge debt mountain, the country's new prime minister has said...
The Japanese government is effectively the only borrower in Japan, and raises all of the money it needs from the savings of its own citizens.
Some 95% of the government's debts are held by Japanese investors, and the government can currently borrow for 30 years at a mere 2% interest rate.
But Mr Scicluna says Japan does have serious medium-term problems related to its ageing population.
As more and more Japanese citizens retire in the next few years, they are likely to start selling their government bonds to pay for their retirements.
This means that Japan will need to start borrowing from the rest of the world, and the government may have a hard time convincing foreign lenders to let it borrow at such a low interest rate...
Comment: Slowly but certainly, and at an ever higher price, Japan is paying for the exuberance of the 1980s when the Japanese central bank kept interest rates artificially low seemingly justified by low inflation, when in fact the official price index was the result of manipulations of the crudest kind.
Investors have already pushed down financial stocks enough to imply the “erosion” in book value that may result from losses tied to a sovereign debt restructuring ...
A $1 trillion aid package from the European Union and International Monetary Fund may delay a Greek default and give Spain, Italy and possibly Portugal time to get their finances in shape, averting a wider contagion, analysts said. Greece’s debt burden is likely to prove unsustainable, said Thomas Mayer, Deutsche Bank AG’s London-based chief economist.
“Deficit reduction alone doesn’t solve the debt issue,” Mayer said in a telephone interview. He estimates Greece’s debt will rise to 150 percent of gross domestic product following the country’s austerity program, from 120 percent. “Hardly anyone I know believes they can carry it out and still not restructure. This is basically the expectation across all asset classes.” ...
A Spanish or Italian cancellation of payments would dwarf a potential Greek default. European banks’ claims on Spain totaled $832 billion at the end of 2009, while those on Italy stood at $1.02 trillion, according to figures from the Bank for International Settlements in Basel, Switzerland. That compares with claims on Greece and Portugal of $193 billion and $240 billion, respectively...
EU banks could absorb losses on government and private debt in Greece, Portugal, Spain and Ireland without having to raise funds, Moody’s Investors Service said in a report today, after surveying more than 30 lenders in 10 nations. The value of private loans such as mortgages and business credit is greater than that tied to government debt, Moody’s said, adding that any losses on private loans would be absorbed over several years.
“Based on our stress test, we believe that these banks would be able to absorb the losses that could arise from such exposures without requiring capital increases -- even under worse-than-expected conditions,” the credit rating company said...
French banks had claims on Greece of $78.8 billion at the end of 2009, the most of any country, according to BIS figures. In Germany, where banks’ Greek claims totaled $45 billion, the risks probably lie mostly with Landesbanks and government-owned lenders that aren’t publicly traded ...
Comment: Even if Greece should default, which is rather unlikely, the risks for the eurozone is limited. I still regard the Greek drama as a Greek comedy with the attack on the euro coming from speculators with more money than brains who are seduced by some pundits who have no idea what they are talking about and whoose ignorance equals their prominence.
Thursday, June 10, 2010
Comment: We're groing back to the old ways that brought us into the current trouble.
Tuesday, June 8, 2010
“We see risk aversion driving the dollar higher over the summer, but expect dollar weakness beyond that,” Bilal Hafeez, chief currency strategist in London, said today in an investor report. “We therefore maintain our bullish profile for the euro for the second half of 2010, though we extend the time needed to reach our $1.35 target.” --
Comment: A prognosis that may well come true, albeit without the detour.
“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note titled “Keynesian Endpoint” that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”
Comment: The world is full of dirty shirts, right, that is why people flee into gold, the only true money, because it is not debt.
Monday, June 7, 2010
Here's a sketch how it is supposed to work:
June 7 (Bloomberg) -- European finance ministers put the finishing touches on a rescue fund being backed by 440 billion euros ($526 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis.
The European Financial Stability Facility would sell bonds backed by the guarantees and use the money it raises to make loans to euro-area nations in need, the finance ministers decided today in Luxembourg. The new mechanism would sell debt for lending only after an aid request is made by a country.
The ministers aim for ratings companies to assign a AAA rating to the facility, whose bonds would be eligible for European Central Bank refinancing operations. The entity will be based in Luxembourg...
The fund, being created for three years, is the main part of a 750 billion-euro aid package that European Union finance ministers hammered out a month ago to combat a sovereign debt crisis. Another 60 billion euros will come from the European Commission -- the EU’s executive arm -- and 250 billion euros from the International Monetary Fund....
All euro-area countries plan to be shareholders of the European Financial Stability Facility, or EFSF. The holding of each country will correspond to its share of the ECB’s capital...
To ensure the highest credit rating for debt sold by the facility, the finance ministers approved a 120 percent guarantee of each country’s pro rata share for each bond issue, according to the statement...
In addition, the ministers authorized the creation, when any loans are made, of a “cash reserve to provide an additional cushion or cash buffer for the operation of the EFSF,” according to the statement...
The "shock and awe" financial rescue package from the European Union and the International Monetary Fund will total euro750 billion ($1 trillion) -- money that can be lent to any indebted eurozone nation risking default, and intended to counter investor fears that Spain, Portugal or others could follow Greece in requiring a bailout to meet debt repayments.--
Comment: The fund is meant never to be used to the full. The real test will come when indeed a country needs a complete bailout. Either the plan succeeds and the countries close to bankruptcy adjust or the whole of Europe goes down the drain with dramatic effects on the rest of the world.
Comment: A paradoxical situation, indeed, because it is mainly the US economy that would need an export boost.
Sunday, June 6, 2010
Going short on dollar bonds and long on the euro emerges ever more clearly as the most profitable investment strategy for the time to come.